Transaction Cycle and Key Documents

1. Transaction Cycle and Key Documents September - November 2011 Mark Okes-Voysey

2. Pre-contractual negotiations • Letter of Intent, Confidentiality Agreement, Contracts with advisers, Data Room Rules, Buyer’s Due Diligence • Share Purchase Agreement, Disclosure Letter, Disclosure Bundle; Escrow Agreement Exchange • Satisfaction/ waiver of agreed conditions prior to completion Conditions Precedent Completion • Share transfer documentation, Shareholders agreement (if < 100% purchased); Corporate/Personal Guarantee • Completion accounts, price adjustment, payment of consideration (if not at completion) Post-Completion Transaction cycle

3. Pre-contractual negotiations Confidentiality agreement • To keep the dealings confidential • Often entered into before the Letter of Intent Letter of Intent (heads of terms, memorandum of understanding etc) • Usually a non binding document (unless specifically agreed otherwise) • Signed in the early stages of a potential transaction • Outlines timetable for transaction • Contains main terms of transaction agreed in principle • Exclusivity • Confidentiality (unless dealt with in the confidentiality agreement) • Care to be taken to ensure that non-binding terms do not create contractual obligations

4. Pre-contractual negotiations Due Diligence • Identifies the risks affecting the target • Allows to decide whether to proceed with the transaction • Leverage for the buyer to negotiate the price and transaction terms Data Room • Established by the seller to provide information in organized manner • Access is granted after the Data Room rules are prepared by the seller • Often used in the auction sale • May be virtual Due diligence results • Representations, warranties and indemnities in the SPA • Conditions precedent in the SPA • Post-completion integration

5. In the case one of the shareholders wants to sell its stake to the third party, the stake should be first offered to the existing shareholders on the same terms and conditions. Major elements of a term sheet (based on transaction with PE) Lock-up period: Fixed period of time when the parties are not allowed to buy or sell their shares in the company Right of first offer: Drag-along clause(conditional/ unconditional): If one of the parties receives a bona fide offer from a third investor, the receiving party shall have the right to require the other party to sell its shares. • Conditional drag-along right: The offer received has to exceed a certain amount (in terms of EBITDA multiples) • Unconditional: If a liquidity event does not occur before the 5th anniversary after the completion

6. Major elements of a term sheet (based on transaction with PE) If one of the parties intends to sell their shares to a third party, the other party shall have the right to sell all but not some of its shares in the company to the proposed third party on the same terms and conditions. However, a partial sale is allowed in case of an IPO. Tag-along clause: Liquidity event Final sale of 100% of the company’s share either to a strategic investor or alternatively run the IPO-process. Agreed number of board members from the side of a controlling shareholders and the PE investor, e.g. 3 and 2. Board composition: Veto right on certain SHA matters, i.e. M&A transaction, changes in the charter of the entity, bringing debt in excess of a certain threshold, etc. Veto rights: Exclusivity: Exclusivity is normally granted once the term-sheet is signed. As an usual practice, in the case the exclusivity clause is broken, the shareholders have to compensate to the potential buyer at least due diligence costs. Commonly granted time for the exclusivity is from 2 to 4 months.

7. Share Purchase Agreement • Share Purchase Agreement (SPA) • Conditions Precedent: actions/events to occur before share transfer • Corporate authorizations • Regulatory approvals (anti-trust etc) • Restructuring • Waivers of pre-emption rights • Mitigating issues identified during due diligence • Pre-completion obligations of the seller vs. conditions precedent • Completion: point of time and procedure for share transfer • Warranties/Representations: statement of facts as to condition of the target • Indemnities: covenant to compensate the buyer in certain events • Limitations on claims and conduct of claims • Non-compete undertaking • Termination for material adverse change (MAC)

8. Disclosure Letter • Disclosure Letter: • Letter from the seller to the buyer with exceptions to the seller’s warranties • No liability for disclosed facts • Facts to be fully and fairly disclosed • General disclosures: public information of which the buyer should be aware • Specific disclosures: specifically disclosed actual matters, made by reference to particular warranties • Disclosure Bundle: copies of documents being disclosed and attached to the Disclosure Letter • Buyer’s knowledge

9. Completion • Completion of the sale and purchase of shares: • After the Conditions Precedent have been satisfied or waived • Transfer of shares by the seller • Payment of consideration by the buyer (unless a retention is used) • Other actions: • Execution of ancillary documents • Transfer of documents relating to the company • Termination of powers of governing bodies • etc.

10. Shareholders Agreement Shareholders Agreement (SHA) • A part of M&A transaction or an independent JV transaction • An agreement between shareholders (and usually the company) • Aimed at regulating the shareholders’ rights and obligations, governance of the company, exit from the company etc. • Agreed matters are also reflected in the company’s foundation documents (subject to confidentiality and legislative restrictions)

11. Shareholders Agreement Limitation of share transfers: • Pre-emption rights: right of the remaining shareholder to purchase shares • Lock-in period: restriction on transfer during certain period • Restrictions on encumbrance of shares • Tag-along rights: minority shareholder may join the sale of the majority shareholder’s shares • Drag-along rights: majority shareholder may require the minority shareholder to join the sale

12. Shareholders Agreement Other SHA provisions • Composition and competence of governing bodies • Reserved matters: to be decided by the shareholders or the board • Funding of the company: shareholders’ obligation to finance • Distribution of profit: proportion, no distribution etc. • Budget and accounts: approval of the budget and compliance • Put and call options • Non-compete undertaking • Termination of the SHA

13. Shareholders Agreement Deadlock • Failure by the shareholders or the board to reach a decision Deadlock Resolution: • Negotiations • Mediator • Exit: • Put/ call options • Russian roulette • Texas shoot-out • Auction • Joint sale to third party • Company liquidation

14. Dispute Resolution • Disputes under SPA or SHA are often referred to international arbitration (e.g. LCIA) • In Russia: • Foreign court’s decision may be enforced if there is an international treaty • Foreign arbitration decisions may be enforced if there is an international treaty (NY Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958)

15. Thank you!